Nuclear plant closures to test sufficiency of decommissioning funds

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Nuclear decommissioning funds are stable, a recently published assessment found. But that conclusion could be tested in the next couple of years as more nuclear plants begin the decommissioning process.

While there is a gap between the funds that utilities have set aside for decommissioning and the estimated costs, continuing contributions and market performance are helping to close the difference. In addition, as companies choose longer term decommissioning options, they are getting more time to secure sufficient funds, reducing concerns about shortfalls for even nuclear critics.

Balance increase

In its annual survey of nuclear decommissioning trust funds, investment consulting firm Callan LLC found that fund balances totaled $64 billion at the end of 2016, a 6% increase from the previous year’s total, but still $41.8 billion short of total estimated decommissioning expenses for the sector.

Despite a $64 million drop in fund contributions in 2016 vs. 2015, the total balance increased mainly due to capital market performance, Julia Moriarty, author of the report and senior vice president and co-manager of Callan’s capital markets research group, told Utility Dive.

The Callan study covers 27 investor-owned utilities and 27 public power utilities that have an ownership interest in the country’s 99 operating nuclear reactors and 11 non-operating reactors.

The report comes as several nuclear plants draw closer to the decommissioning process. Six nuclear reactors have closed since 2013, according to the Nuclear Energy Institute, and several more plants, including Entergy’s Pilgrim in Massachusetts, and Exelon’s Oyster Creek in New Jersey and Three Mile Island in Pennsylvania, are slated to close in 2019.

Meanwhile, DOE is moving to increase support for baseload generators like coal and nuclear and recognize the reliability and resiliency they provide to the electric grid.

SONGS, which closed in 2013 and is 78% owned by Southern California Edison, is one of the plants that has begun the decommissioning process.

Unlike other recently closed nuclear plants, SONGS has taken the unusual step of electing to “DECON” the plant. In Nuclear Regulatory Commission jargon, “DECON” means immediate dismantling and decontamination of a closed nuclear plant. The other option is SAFSTOR, which defers dismantling the plant for up to 60 years. Almost all the 18 plants undergoing decommissioning are using SAFSTOR. A third option under NRC rules, ENTOMB, calls for radioactive contaminants to be permanently encased on site. No nuclear licensees have yet chosen that option.

SONGS chose DECON because that was the “strong preference of the Navy,” which owns the land the plant sits on, as well as the neighboring communities, Maureen Brown, senior media relations project manager for the plant, told Utility Dive.

“We believe there are specific cost advantages to immediate dismantlement, including the certainty of low level waste disposal costs today. In the longer-term, those costs could be higher,” Brown said.

The SONGS decommissioning fund stands at $4.1 billion. SONGS’ decommissioning costs are estimated at $4.4 billion, but with expected investment earnings, that is considered “fully funded,” Brown said.

Mind the gap

The SONGS gap between current funds and estimated costs is not unusual. Callan found that investor-owned utilities, in aggregate, have about $55.3 billion in decommissioning funds, which puts them $30.4 billion short of projected expenses. Public power utilities have $8.5 billion in total funds and a shortfall of $11.4 billion.

Those shortfalls are not as dire as they might appear as they measure current assets against future liabilities. The NRC estimates that the cost of decommissioning a nuclear reactor ranges from $280 million to $612 million, but says there are many site specific variables that can affect costs. Many utilities conduct their own estimates, which they can use as long as they are not lower than NRC estimates. The gap also does not take into account the growth in funds that can occur due to strong market performance, even without contributions.

A 2012 draft report by the Pacific Northwest National Laboratory done for the NRC looked at four decommissioned plants: Rancho Seco, Maine Yankee, Trojan and Haddam Neck. The report compared original estimates against actual costs and found shortfalls in estimates for project management, decontamination and removal, insurance, and regulatory costs in the range of 100% to 250%.

The report also found under-estimation, ranging from 10% to 70% for packaging costs, 10% to 60% for transportation costs, and 50% to 75% for low level waste disposal costs.

In a 2013 review of the PNNL report, NRC staff concluded that no changes were necessary for its cost estimate formula. Staff concluded that the “current formula provides a reasonable minimum financial value, or reference level, for reasonable assurance of decommissioning funding.” They said the formula is not meant to represent actual costs but a “reference level established to assure that licensees demonstrate adequate financial responsibility that the bulk of the funds necessary for safe decommissioning are being considered and planned for early in facility life.” They also noted that “no reactor has failed to perform its decommissioning obligation due to lack of funds.”

Fund assessment

The NRC does a biennial assessment of the health nuclear decommissioning funds. In its latest review, in 2015, the commission acknowledged that shortfalls “are considered temporary lapses” that can be remedied by trust fund growth, a parent company guarantee, or trust fund contributions.

In the 2015 report, the NRC found that all operating reactor licensees were meeting their funding requirements, except Exelon, which self reported shortfalls for two reactors at its Braidwood station and one reactor at its Byron station.

Asked if those shortfalls had been remedied, Exelon spokesman Paul Dempsey referred to an NRC document from March that found a $170 million decommissioning shortfall for Braidwood unit 1 ($492 million estimated cost vs. $322 million in funds) and a $144 million shortfall for unit 2 ($492 million vs. $348 million).

For Byron unit 1, the shortfall is $139 million ($492 million estimated cost vs. $353 million in funds). For Byron unit 2, the gap is $152 million ($492 million vs. $340 million). All fund amounts are as of Dec. 31, 2016.

Asked about specific sums in the decommissioning trusts for Three Mile Island and Oyster Creek, Exelon said the trust fund balances for the plants "are in full compliance with NRC requirements. Exelon Generation is currently preparing a long-term decommissioning plan for both facilities and will continue to safely operate the plants until their respective closures.”

Transferring responsibility

Entergy initially chose SAFSTOR for Vermont Yankee, which closed in December 2014.

The decommissioning option has several advantages for nuclear operators. It adds in time for a decommissioning fund to grow through contributions and market gains, and it allows nuclear waste to degrade to a level that would make it less costly to handle. SAFSTOR would give Vermont Yankee until 2073, its license expiration date, to complete decommissioning.

In late 2016, however, Vermont Yankee switched gears. It is now seeking regulatory approval to sell its nuclear assets, including its license, to NorthStar Group Services, a private company.

Under the plan presented to the NRC, the spent fuel at the plant would be moved to dry cask storage by the end of 2018, and decommissioning would be completed by 2030, at least 40 years sooner than originally planned.

The balance of Vermont Yankee’s nuclear decommissioning fund was $574.6 million as of Aug. 31, 2017, Michael Twomey, vice president of external affairs for Entergy Wholesale Commodities, told Utility Dive. NorthStar’s revised decommissioning cost estimate is $498.5 million. If the deal goes through, NorthStar would take over ownership and responsibility for Vermont Yankee’s spent fuel and its decommissioning fund. If the deal does not go through, Twomey said Entergy would “re-evaluate its plans for Vermont Yankee.”

With the spent fuel element, a completed deal would put Vermont Yankee a step beyond the first such transfer of responsibility in 2010 when Exelon contracted with EnergySolutions for the decommissioning of its Zion nuclear plant. That deal calls for the nuclear license to be transferred back to Exelon after the completion of the 10 year decommissioning project, so that Exelon will resume ownership of the spent nuclear fuel.

If the Vermont Yankee deal wins federal and local approvals, it could provide an interesting model for other reactors facing early retirement and decommissioning.

One of them is Entergy’s Pilgrim plant, which is scheduled to close in 2019.

Entergy has not said which decommissioning path it will use for Pilgrim. But according to Platts, current plans are to use SAFSTOR.

Pilgrim’s decommissioning fund was $1 billion as of March 31. Entergy has not yet released its site specific decommissioning cost estimate for Pilgrim, but a preliminary company estimate put the price tag at $914.4 million (in 2007 dollars).

Concerns have been raised about the NorthStar deal. For instance, if the private company runs out of money in the midst of decommissioning, it would be harder for them to raise more funds than it would for a regulated utility. But there are obvious attractions in terms of savings of time and money that could make it an attractive model and make decommissioning of nuclear plants less painful than building new ones.

Not a major concern

Even for a nuclear critic, a shortfall of decommissioning funds is not a major concern. “Several factors combine to lessen my concerns,” Dave Lochbaum, director of the Union of Concerned Scientists’ nuclear safety program, told Utility Dive.

Decommissioning funds were set up to coincide with the initial 40-year license terms for nuclear power plants. Most U.S. reactors have extended their licenses for another 20 years and the average reactor age is about 30 years. So even with early retirements, the funds “are more real money now than IOUs,” Lochbaum said.

Lochbaum also noted that several plants have already undergone decommissioning and that reduces uncertainty about actual costs. “Instead of speculative estimates, there's more analysis of real-world costs.” In addition, competition among decommissioning companies has helped reduce costs, he said. His biggest concern is the “end state,” the lack of a national spent fuel repository.

Overall, there has been a “pretty good track record for nuclear decommissioning,” Jay Silberg, a partner with Pillsbury who has wide experience in nuclear matters, told Utility Dive. Some people are worried that the cost of low level nuclear waste disposal will go up, but "the risk is much less today than it was 10 or 20 years ago because we have a track record.”

The technology used in decommissioning has also improved, Silberg said, and there is competition, which serves to keep a lid on prices or bring them down. He also has noticed that state and local officials want the decommissioning process to move much more quickly, as seen in California where SONGS has chosen the fast track DECON path.